The FIA has reinforced Formula 1’s financial regulations ahead of the $175million cost cap’s introduction next season, as it gears up for the next major test of its regulatory power.
F1’s governing body is currently locked in a public fight with seven teams over a confidential settlement it made with Ferrari following an investigation into the legality of the Italian team’s 2019 engine.
That saga has harmed the teams’ trust in the FIA’s ability to police F1’s ultra-complex technical regulations, and has dominated the narrative in the build-up to the 2020 season.
However, in a year’s time there will be ultra-complex financial regulations in the mix as well and, on Friday this week, the World Motor Sport Council approved changes to those new rules.
These changes are reinforcements for another big fight the FIA will have on its hands.
Under the terms of the draft 2021 financial regulations first released last October, teams would be obliged to cooperate fully with any investigation from the cost cap administration (CCA).
They need to grant access to the information, records and electronic devices of the F1 team and its legal group structure. Access to “premises, individuals, information, and documentation” must not be denied either.
To beef up the process, the financial regulations have now been tweaked to accommodate greater detail in support of the CCA’s “regulatory functions”.
The changes include an all-new section of the rules that can be described as an effort to toughen-up the procedures ahead of a major battle.
In short, the CCA will be able to conduct more detailed pre-emptive checks before an investigation is even deemed necessary.
The ability to carry out ‘information raids’ is a pre-emptive move that in theory strengthens the administration’s hand
It has the ability to demand an F1 team provides any information and/or documentation that allows the CCA to carry out its duties, including mitigating “the risk of incomplete, inaccurate or misleading” reports being submitted.
Its other duties include checking the controls the team has adopted, reviewing transactions, and identifying areas in the financial regulations that need to be clarified.
Access to “premises, individuals, information, and documentation” must be granted for these checks as well as well.
It would be a stretch to see these as the financial equivalent of on-the-spot doping examinations, because the final accounts are what the CCA may investigate and determine a breach from.
However, the ability to carry out ‘information raids’ is a pre-emptive move that in theory strengthens the administration’s hand.
It gives them the scope to demand access to anything more often during the process.
The relevance of the Ferrari engine saga
Comparing financial and technical matters is difficult because there are different variables related to each, but the basic principle is the same: a potentially huge punishment awaits a team if it is found to have committed a serious breach.
Shifting the financial rules policing into a technical context is a good way to understand the concerns of some teams.
The governing body lacks the human, technical and financial resources of the teams. It has finite research and analysis capabilities.
One rumour has already been floated that a team has considered the viability of selling parts of its F1 business to an ‘independent company’ that then sells services to the F1 team with a cut-price deal
Complex regulations operate with a certain dependence on trust: the FIA relies on teams not going to extreme lengths to cheat, and the teams rely on the processes that are in place to be enough.
But is an investigation cannot establish “unequivocal evidence” that proves a rules breach, what happens to that trust?
For example, one rumour has already been floated that a team has considered the viability of selling parts of its F1 business to an ‘independent company’ that then sells services to the F1 team with a cut-price deal.
If Team X is considered by its rivals to have committed a serious financial breach, and the FIA has suspicions, it will be investigated. But what if it gets away with a reprimand, when it has the potential to be excluded from the championship, because of a lack of evidence?
Any team on the defensive in a high-stakes matter will interrogate the FIA’s financial rules and processes to the nth degree in a bid to prove it lacks evidence for a ‘guilty’ verdict.
In the Ferrari engine saga, Ferrari is innocent until proven guilty, despite the concerns of its rivals and the FIA confessing to its own suspicions.
We are seeing the consequences of the reliance on trust play out at the start of 2020. It’s not hard to imagine the same thing happening in a financial context after 2021.
Why it’s a big deal
Whether the financial rules work in practice, or these reinforcements are enough to appease teams that have significant reservations over the robustness of the policing of these rules, only time will tell.
But anything that enhances the CCA’s powers is important because the sanctions for a financial rules breach are wide-ranging.
The hope will be that these financial regulations are robust enough to stop anyone from being able to pull the wool over the eyes of the regulators
Financial penalties are self-explanatory, with teams facing a fine in an amount to be determined on a case by case basis.
“Minor sporting penalties” start at a public reprimand but escalate to points deductions for driver and team, suspension from certain sessions (but not races themselves), testing restrictions or a reduction in that team’s cost cap.
“Material sporting penalties” are the most severe. They include the same sanctions as minor sporting penalties but also cover suspension from a grand prix and exclusion from the championship.
The hope will be that these financial regulations are robust enough, and sufficiently supported by legislation and accounting standards within each team’s respective countries, to stop anyone from being able to pull the wool over the eyes of the regulators.
A cost cap represents uncharted territory for F1 and the FIA, and is an entirely commendable initiative. The process will almost certainly evolve as real-world examples reveal weaknesses in the rules.
The latest reinforcements, along with several tweaked definitions, clarifications and new paragraphs, will not be the last time the financial regulations are amended.
So while F1’s engine settlement saga continues to dominate the short-term narrative, there’s another potential war on the horizon for the governing body and the teams, with just as much at stake – if not more.